The key suspense surrounding Google I/O is not whether Gemini 4.0 will debut, but whether Google can demonstrate that Gemini is translating from model capability into revenue growth for its search, advertising, shopping, and cloud businesses. Google has two key events scheduled for the coming week: Google I/O on May 19, focusing on products and models, and Google Marketing Live on May 21, which is more directly oriented toward advertising and commercialization. Market focus is shifting from "what model will be released" to "how AI capabilities will integrate into daily business processes." According to analysis, Citigroup analyst Ronald Josey noted in a May 12 research report that the Gemini model remains at the forefront, AI tools are driving global query growth, UCP is transforming commerce, and Google Cloud's backlog nearly doubled sequentially to $462 billion. Citigroup maintains a "Buy" rating on Alphabet with a $447 price target. This implies that any model updates at I/O are merely the first layer of signals. What truly impacts valuation is whether AI search can expand commercial queries, whether AI Max can become the new default tool for ad budgets, whether agentic shopping can connect transaction chains, and whether the cloud business can continue to benefit from Gemini, TPUs, and enterprise AI demand.
Gemini 4.0 is possible, but not the sole focus
Considering the release cadence, Gemini 4.0 is not impossible. Over the past two years, Google has successively launched Gemini 1.0 Pro, 1.5 Pro, 2.0 Flash, 2.5 Pro, 3 Pro, and 3.1 Pro, with Gemini 3.1 Pro released in February 2026. Following an approximately 3 to 4-month cycle, Gemini 3.2 or 3.5 is more likely to be seen at I/O, while Gemini 4.0 remains a possibility, albeit with a relatively lower probability. For investors, the model number itself is not the decisive factor. More important is whether the Gemini ecosystem continues to expand, including Genie 3, Gemma 4, Gemini Robotics ER-1.6, and the pathway for Gemini to integrate into more core services beyond Gmail and Maps. Google may also update Gemini Health, Android XR smart glasses, and travel scenario integrations around services like Google Canvas. If these products can form a unified entry point, it would strengthen Gemini's role as an operational layer, rather than merely a chat or generation tool. By the end of Q1 2026, Google's product suite had reached 350 million subscribers. The next point of observation is whether Gemini's functional expansion will drive subscription revenue or serve advertising monetization more. If AI search improves the user experience but weakens ad impressions, the market reaction may be limited; if it imbues more queries with commercial intent, the growth potential of the advertising business will be reassessed.
The key to AI search is turning queries into actionable intent
Search remains the core of Google's valuation. The most noteworthy changes at I/O will be how AI-O, AI-M, and the Gemini search experience integrate, and Chrome's role within this framework. Google management mentioned during the Q1 earnings call that longer, more complex queries from AI-O, AI-M, and Gemini provide more intent-based data. This directly relates to advertising value. Users are no longer just inputting short keywords but are entering budgets, scenarios, preferences, and constraints, allowing Google to obtain more granular demand signals. Traditionally, approximately 20% of queries have commercial attributes. If AI search transforms more queries into identifiable, matchable, and actionable commercial intent, the ceiling for search advertising could rise. For advertisers, the question is not whether the AI features are advanced, but whether they can deliver more conversions under the same CPA (cost per acquisition). In Q1, Google query volume reached a record high. In April 2026, Google's global search share was 90.0%, a sequential increase of 10 basis points. Chrome's global share was 68.0%, a sequential increase of 130 basis points. If these entry points continue to expand, the commercialization foundation for AI search will become more solid.
Google Marketing Live will test AI ad monetization
If Google I/O answers "where AI capabilities are going," Google Marketing Live answers "how AI makes money." Currently, AI-driven advertising campaigns already account for over 30% of search ad spend, covering tools like AI Max, P-Max, and Demand Generation. Advertisers can create and modify campaigns using prompts, Ads Advisor provides agentic assistance, Smart Bidding Exploration delivers about 27% more conversions in search campaigns, Campaign Total Budgets reduce manual budget adjustments by about 66%, and Journey Aware Bidding remains in the testing phase. AI Max will be the most critical observation point at GML. The tool concluded its beta test in April 2026 and is planned to fully replace Dynamic Search Ads by September 2026. Early results show that the full AI Max feature set delivers 14% more conversions; through broader search term matching, it delivers 7% more conversions at a similar CPA. Google is also advancing vertical optimizations like AI Max for Shopping and Search Campaigns for Travel. If these tools become the new default configuration for search budgets, AI's impact on the advertising business will shift from "feature upgrades" to "ad delivery system reconstruction."
Agentic shopping targets transaction closure
Google's shopping business is extending from a product discovery entry point deeper into the transaction chain. UCP, Direct Offers, Agentic Checkout, and agentic shopping experiences within Google Shopping and Chrome will be common observation points for both I/O and GML. This change is not simply about adding shopping buttons but about reducing friction between search, comparison, selection, and checkout. Google's recent partner expansions include several large e-commerce companies, Meta, Microsoft, Stripe, and later additions of Klarna and Affirm. If payment, installment, checkout, and ad delivery can be linked, Google Shopping's commercial role will become more significant. Chrome's role is also becoming more important. In April 2026, Chrome's global share was 68.0%, and its US share was 50.0%. If agentic shopping, personalized recommendations, and checkout processes are embedded into Chrome, Google will gain a new commercial entry point beyond search. This is also one reason investors are focused on I/O. If Gemini can advance from "providing search answers" to "executing actions," Google's pricing power in shopping and advertising could strengthen.
Cloud business and TPUs are increasing Alphabet's valuation weight
Alphabet's past valuation core was search advertising, but Google Cloud is becoming a more important variable. In Q1, Google Cloud revenue was $20.028 billion, a year-over-year increase of 63.4%; backlog reached $462.3 billion, nearly doubling sequentially and growing 400.3% year-over-year. Token consumption grew 60% sequentially during the same period. These metrics indicate that enterprise AI demand is entering the cloud business's order book and usage. Projections show Google Cloud revenue potentially increasing from $58.705 billion in 2025 to $94.529 billion in 2026, then to $146.521 billion in 2027 and $209.525 billion in 2028. Corresponding growth rates are projected at 61.0% for 2026, 55.0% for 2027, and 43.0% for 2028. The cloud business's share of total revenue is also expected to rise from 14.6% in 2025 to 19.5% in 2026 and reach 30.6% by 2028. Margins are also improving. Google Cloud's operating margin was 23.7% in 2025, projected to rise to 33.8% in 2026, 35.0% in 2027, and 35.5% in 2028. This means the cloud business is no longer just a high-growth segment but is beginning to support Alphabet's overall profitability. At I/O, Gemini Code Assist, "vibe coding" tools in Google AI Studio, and TPU sales strategy are also worth watching. TPU-related revenue is expected to begin contributing in the second half of 2026 and become significantly larger in 2027. For the market, this represents Google Cloud forming a more complete chain between models, chips, infrastructure, and enterprise AI tools.
YouTube and AI creative tools provide another growth line
The YouTube Brandcast on May 13 serves as a precursor to I/O and GML. Observation points include YouTube engagement, Shorts growth, Demand Gen tool updates, and subscription adoption for YouTube Premium/Music following the April 2026 price increase. The advertising creative side is also being remade by AI. Gemini Omni is positioned for end-to-end creative orchestration, with generation to editing potentially integrated into the ad workflow. Lyria 3 has already generated over 150 million songs. Demand Gen ads with video enhancements deliver 16% higher conversions. The commercial significance of these tools lies in reducing ad production and iteration costs. Previously, advertisers needed to handle creative assets, delivery, budgeting, and bidding separately; now Google is attempting to place these steps into the same automated system. As long as conversion rate improvements persist, advertiser motivation to migrate to AI-driven delivery processes will strengthen.
Valuation bet: Can AI support a higher multiple?
Citigroup's $447 price target is based on approximately 30 times the 2027 GAAP EPS of $14.75. Based on the May 12 closing price of $387.35, the expected share price return is 15.4%, and with a 0.2% dividend yield, the total expected return is 15.6%. Alphabet currently trades at about 26 times the 2027 GAAP EPS. A 30x valuation is above the market and above Google's own historical valuation range. For this premium to hold, two conditions must be met simultaneously: search queries continue to grow without AI weakening the advertising foundation; Google Cloud continues to accelerate under Gemini demand, TPU demand, and enterprise AI adoption. The revenue model projects Alphabet's total revenue increasing from $402.836 billion in 2025 to $484.620 billion in 2026, a year-over-year increase of 20.3%; to $579.560 billion in 2027, a 19.6% increase; and to $684.904 billion in 2028, an 18.2% increase. Google Search and Other revenue is projected at $260.170 billion in 2026, a 15.9% year-over-year increase; total advertising revenue is projected at $333.057 billion in 2026, a 13.0% year-over-year increase. Risks are also clear. Ad budgets may be impacted by economic and consumer spending headwinds, AI competition may affect Google more than expected, internet ad spend may decelerate faster, and antitrust, data, and privacy regulations could still pressure valuation. Therefore, whether Gemini 4.0 is announced will attract attention, but it is not the sole answer. What the next two events truly need to demonstrate is whether the AI capabilities Google showcases can become growth engines for its search, advertising, shopping, and cloud businesses.
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